Just like taxes themselves, annual changes to the IRS tax code are a certainty. Luckily, the changes are mostly minor for 2021, but there are still a number of changes to provisions and limits that will affect millions of taxpayers.
For instance, now that most people take the standard deduction, slight increases for inflation are welcome news. According to the IRS, here are the new amounts for 2021:
| Filing Status | Standard Deduction for 2021 Tax Year | Change from 2020 |
|---|---|---|
| Single | $12,550 | +$150 |
| Married filing jointly | $25,100 | +$300 |
| Head of household | $18,800 | +$150 |
| Married filing separately | $12,550 | +$150 |
Retirement Accounts
There are measurable tax benefits to putting money into retirement accounts, which is why IRS puts limits on just how much of that money you can deduct or contribute in any given year.
For the coming year, the actual allowable contribution amounts will stay the same, but there are changes in the income limit for some types of accounts. For example, both traditional and Roth IRAs have income thresholds , and allowable contributions and deductions gradually phase out as income increases and/or surpasses those limits. Again, the changes are minor for the coming year, but valuable to know. Here is the IRS chart outlining the income thresholds and phase-out limits:
| Filing Status | Roth IRA Phase-Out Range | Traditional IRA Phase-Out Range if Worker Has Employer-Sponsored Retirement Account | Traditional IRA Phase-Out Range if Spouse Has Employer-Sponsored Retirement Account |
|---|---|---|---|
| Single | $125,000 to $140,000 | $66,000 to $76,000 | N/A |
| Married filing jointly | $198,000 to $208,000 | $105,000 to $125,000 | $198,000 to $208,000 |
| Married filing separately | $0 to $10,000 | $0 to $10,000 | $0 to $10,000 |
2021 Tax Brackets
Tax brackets are changing slightly for the coming year also. It can be hard to say precisely what bracket you’ll end up in until you have figured out your AGI (Adjusted Gross Income) for next year, but we have provided the IRS tables below for singles, married filing jointly, and married filing separately to give you an idea of the adjusted ranges.
Brackets for Singles
| Bracket for Singles | Tax is this amount + this percentage | Of the amount over |
|---|---|---|
| $0 to $9,950 | $0 plus 10% | $0 |
| $9,950 to $40,525 | $995 plus 12% | $9,950 |
| $40,525 to $86,375 | $4,664 plus 22% | $40,525 |
| $86,375 to $164,925 | $14,751 plus 24% | $86,375 |
| $164,925 to $209,425 | $33,603 plus 32% | $164,925 |
| $209,425 to $523,600 | $47,843 plus 35% | $209,425 |
| Above $523,600 | $157,804.25 plus 37% | $523,600 |
Brackets for Married Filing Jointly
| Bracket for married filing jointly | Tax is this amount + this percentage | Of the amount over |
|---|---|---|
| $0 to $19,900 | $0 plus 10% | $0 |
| $19,900 to $81,050 | $1,990 plus 12% | $19,900 |
| $81,050 to $172,750 | $9,328 plus 22% | $81,050 |
| $172,750 to $329,850 | $29,502 plus 24% | $172,750 |
| $329,850 to $418,850 | $67,206 plus 32% | $329,850 |
| $418,850 to $628,300 | $95,686 plus 35% | $418,850 |
| Above $628,300 | $168,993.50 plus 37% | $628,300 |
Brackets for Married Filing Separately
| Bracket for married filing separately | Tax is this amount + this percentage | Of the amount over |
|---|---|---|
| $0 to $9,950 | $0 plus 10% | $0 |
| $9,950 to $40,525 | $995 plus 12% | $9,950 |
| $40,525 to $86,375 | $4,664 plus 22% | $40,525 |
| $86,375 to $164,925 | $14,751 plus 24% | $86,375 |
| $164,925 to $209,425 | $33,603 plus 32% | $164,925 |
| $209,425 to $314,150 | $47,843 plus 35% | $209,425 |
| Above $314,150 | $84,496.75 plus 37% | $314,150 |
There are a number of other changes to various tax provisions for 2021 that may affect your situation. These include capital gains and estate taxes.
We have found a comprehensive overview of the 2021 changes on The Motley Fool website here. It’s definitely worth a look as you start thinking about tax planning for the New Year!
